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Globalisation and the Indian Economy Mind Map
Globalisation and the indian economy
Globalisation is the integration between countries through foreign trade and foreign investment by Multinational Companies (MNCs). In recent years, markets in India have transformed due to globalisation.
Production Across Countries
The early phase of globalisation involved export of raw materials from colonial countries such as India and import of finished products from industrially developed European countries and the USA. But from the middle of the 20th century, things began to change. Some companies became Multinational Corporations (MNCs) as they spread their economic activities to various parts of the world.
Multinational Corporations (MNCs)
An MNC is a company that owns or controls production in more than one country. MNCs set-up offices and factories for production in regions where they can get
cheap labour and other resources, to minimise cost and maximise profit. They sell their finished products globally and also produce the goods and services globally. The production process is divided into small parts and spread out across the globe.
Advantage of Spreading Out
By spreading out production across different countries, the MNCs get the best quality resources at cheap prices. This increases their profit. By spreading the production, the MNCs generate employment opportunities in underdeveloped countries.
Interlinking Production Across Countries
Some ways of interlinking production across countries are
- Foreign Investment It means investment made by a company based in one country (usually an MNC), into a company based in another country. MNCs set-up the production units by setting up factories or offices in the foreign country.
- Partnerships/Joint Venture Sometimes MNCs merged with local companies and produce jointly. In this way, MNCs provide money for additional investments like buying new machines for faster production and bring latest technology for production.
- Local Companies/Mergers/ Takeover MNCs buy local production units or merge with local companies to expand production. For example, Cargill Foods of USA has taken over Parakh Foods in India and has become the largest producer of edible oil in India.
- Contracts to Local Companies MNCs also place orders with small producers for production. The MNC determines the price, quality, delivery and labour conditions for these distant producers, etc.
Foreign Trade and Integration of Markets
Foreign trade is a trade between different countries of the world. It is also called international trade, external trade or inter-regional trade. It consists of imports and exports.
Foreign trade helps in the integration (connection) of markets in the following ways
- Facilitate movement of goods and services between countries.
- Facilitate movement of people, ideas and technology.
- Gives opportunity to producers to sell their products beyond local/domestic markets.
- Buyers get more choice of goods.
- Increased competition among producers so better quality of goods and services can be provided.
An example of foreign trade in India is that how the cheap and better quality of Chinese toys replaced the Indian toys.
It is the process of rapid integration or interconnection between countries by greater foreign investment and great foreign trade. Globalisation causes integration of markets as well as production centres.
In the process of globalisation, MNCs are playing major role. More and more goods and services, investments and technology are moving among different countries.
Besides the movements of goods, services, investments and technology, countries are connected through the movement of people between them, i.e. migration. This is because people usually move from one country to another in search of a better life, higher income, better jobs or better education.
Role of IT in Globalisation
Fast improvement in technology during the last 50 years, such as improvements in transportation technology have resulted in much faster delivery of goods across long distances at lower costs. Information and Communication Technology (ICT or IT1) has speed up the communication services across the globe.
Telecommunication facilities (telegraph, telephone, mobile phones, fax) and internet through satellite communication is used to contact one another around the world, to access information instantly and to communicate from remote areas.
An example of this one is a news magazine published for readers in London, which is designed and printed in Delhi by using telecommunication facilities and internet.
Foreign Investment Policy
The policy of foreign investment adopted by the government also affects globalisation to a large extent. It restricts or encourages foreign investment seeing the situation in the country. Trade barrier is one such foreign investment policy.
It is a restriction on the free international exchange of goods or services. Tax on imports (called import duty) is an example of a trade barrier. It is called a barrier because some restriction has been set-up. Governments use trade barriers to regulate foreign trade and to decide what kinds of goods and how much of each, should come into the country.
Similarly Quotas2 are a way of restriction on volume or quantity of goods to be imported or exported.
Restrictions on Foreign Trade
After independence, the Government of India had put barriers on foreign trade and foreign investment, to protect the domestic producers3 from foreign competition, as the industries were justcoming up in 1950s and 1960s. At that time, India allowed imports of only essential items such as machinery, fertilisers, petroleum, etc.
New Economic Policy, 1991
Around 1991, it was felt that Indian producers must compete with producers around the globe, so that they can improve their production and quality of goods and services. Therefore, Government of India in 1991 made some major changes in its foreign investment policy. Liberalisation was one such change. This decision was supported by powerful international organisations like World Trade Organisation (WTO).
Removing barriers or restrictions set earlier by the government on foreign trade is known as liberalisation. In India, it refers to the decision to reduce restrictions on imports undertaken by the Government of India in 1991.
With liberalisation of trade, businesses are allowed to make decisions freely about what they wish to import or export. Now, the government imposes less restrictions than before and is therefore considered to be more liberal.
World Trade Organisation (WTO)
It is an international organisation dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and as freely as possible. It supported the liberalisation of foreign trade and investment in India.
WTO was started at the initiative of the developed countries. Its objective is to liberalise international trade and ensure that its members obey its rules. Though WTO is supposed to allow free trade for all the countries, but it is found that the developed countries have unfairly implemented some rules. They have forced the developing countries to remove barriers from their countries. At the same time, they themselves have restricted imports to their countries or used unfair trade practice to manipulate the market.
An example of this is the trade in agricultural products. Agriculturists in the USA are heavily subsidised by theirgovernment, so that they can export products like wheat and cotton at very low prices to developing countries. This increase competition and adversely affects farmers in these countries.
Impact of Globalisation in India
- Globalisation resulted in more competition among producers (both local and foreign). It gives greater choice of goods with improved quality at lower prices.
- MNCs have increased their investments in India in cell phones, automobiles, electronics, soft drinks, fast food and services such as banking in urban areas.
- Many new jobs have been created and local companies supplying raw materials and services to these industries have prospered.
- Globalisation brings in new and improved technology by which even the local companies benefit.
- Some large Indian compaines like Infosys, Tata Motors, Asian Paints, Ranbaxy Infosys (IT), Sundaram Fasteners have emerged as MNCs and set up companies in other countries.
- New companies that provide call centres4, IT related services, accounts and administrative jobs have established.
- Globalisation has threatened small producers as their production has decreased considerably. Producers of small industries like battery, capacitors, plastic toys, tyres, dairy products and vegetable oil are affected due to competition.
Government Steps to Attract Foreign Investment
In recent years, the Central and State Governments in India are taking special steps to attract foreign companies to invest in India. These are
- They have set-up industrial zones, called Special Economic Zones (SEZs). SEZs have world class facilities: electricity,water, roads, transport, storage, recreational and educational facilities.
- Companies who set-up production units in the SEZs do not have to pay taxes for an initial period of five years.
- Government has also allowed flexibility in the labour laws to attract foreign investment.
- The companies in the organised sector have to obey certain rules that aim to protect the workers’ rights.
- Instead of hiring workers on a regular basis, companies hire workers flexibly for short periods when there is intense pressure of work. This is done to reduce the cost of labour for the company.
Growing Competition and Uncertain Employment
Globalisation and the pressure of competition have changed the lives of workers. With growing competition, most employers these days prefer flexible employment5. This means that workers jobs are no longer secure. For example, in the garment export industry.
Indian garment exporters try to cut their own costs by reducing labour costs, as raw material costs cannot be reduced. So, they employ workers only on a temporary basis. Workers get very low wages and forced to do overtime to manage their expenses. Even in the organised sector, workers no longer get the protection and benefits that they enjoyed earlier.
The Struggle for a Fair Globalisation
People with education, skill and wealth have made the best use of the new opportunities arised due to globalisation. To make it more ‘fair’, government plays a major role which is
- It ensures that policies such as labour laws are strictly followed.
- It supports and protects small producers from global competition and to improve their performance.
- It negotiates with the WTO to ensure fair rules and concessions for developing countries.
- The government can also use trade and investment barriers to protect the interest of domestic produce.
- Government can also align with other developing countries with similar interests to fight against the authority of developed countries in the WTO.
Gobalisation and the Indian Economy Quick Revision
Globalisation means integrating or interconnecting the economy of a country with the
economies of other countries under conditions of free flow of trade, services, technology,
capital and movement of people across international borders.
Integration of markets in different countries is known as foreign trade.
Planning Commission in India has laid emphasis on the development of foreign trade in
the five year plans due to the following reasons:
- A country can make efficient use of its natural resources.
- It can export its surplus production.
- Further, through effective regularisation of foreign trade, employment, output, prices
- and industrialisation; economic development of a country can properly accelerate.
Investment made by multinational corporations (MNCs) is called foreign investment.
MNCs are playing a major role in the process of rapid integration or interconnection between countries. Now
more regions of the world are in closer contact with each other than a few decades back.
MNCs play an important role in the Indian economy by setting up production jointly with some of the local
companies. For example, MNCs can provide money for additional investments like buying new machines for
faster production. Take another example—Cargill Foods, a very large American MNC, has bought smaller Indian
companies such as Parakh Foods.
Rapid improvement in information and communication technology has been one major factor that has stimulated the globalisation process. To access information instantly and to communicate from remote areas, devices such as telephones, mobiles and computers are very useful. Further, it has played a major role in spreading out production of services across countries.
Globalisation and its Impact
Impact of globalisation on the country is manifold. This can be understood by the following
MNCs have increased their investment over the past 15 years, which is beneficial for them as
well as for Indians also. This is because these MNCs provide employment opportunities to the
masses and local companies supplying raw material to these industries have prospered. But
globalisation has failed to solve the problem of poverty and it has widened the gap between the
rich and the poor. Only skilled and educated class has been benefited from globalisation.
There is a greater choice for consumers, with a variety of goods available at cheap prices.
Now they enjoy a much higher standard of living.
Liberalisation of economy means to free it from direct or physical controls imposed by the
government. In other words, removing barriers or restrictions set by the government is what is
known as liberalisation.
Let us see the effect of foreign trade through the example of Chinese toys in the Indian market. Chinese toys
have become more popular in the Indian market because of their cheaper prices and new designs. Now Indian
buyers have a greater choice of toys and at lower prices. Simultaneously, Chinese toy makers get the opportunity to expand business. On the other side, Indian toy makers face losses.
World Trade Organization (WTO) was started at the initiative of developed countries. The main objective of
the World Trade Organization is to liberalise international trade. At present, 164 countries (since July 2016) are
members of the WTO.
At present, central and state governments in India are taking special steps to attract foreign companies to invest in India. For this, Special Economic Zones (SEZs) are being set up. Special Economic Zones have world class facilities – electricity, telecommunication, broadband internet, roads, transport, storage and recreational facilities to attract investment from MNCs and other companies.
Challenges and Factors that Enabled Globalisation.
Globalisation and liberalisation have posed major challenges for small producers and
Small manufacturers have been hit hard due to the competition. Several of the units have
been shut down rendering many workers jobless.
Around 20 millions of workers are employed in small industries. Because of growing
competition, most employers these days prefer to employ workers flexibly. This means that
workers have no secure jobs. This can be explained with the help of an example- 35 year old
Sushila got a job after searching for six months. She is a temporary worker. She did not get
any benefit such as provident fund, medical allowance, bonus, etc.
A day off from work means no wage.
Competition among the garment exporters has allowed the MNCs to make large profits, but
workers are denied their fair share of benefits brought about by globalisation.
- The government can take steps to ensure that the benefits of globalisation reach everyone:
- Formulate labour laws that are effective and watertight to ensure the rights of workers.
- Have policies to protect the interests of the small producers against the MNCs.
- Trade barriers to protect the domestic economy from foreign trade and unfair competition from developed
- Align with other developing countries to negotiate with WTO to impose trade restrictions like imposition of
- tariff and quotas.
Factors that enabled globalisation: Rapid improvement in technology and liberalisation of foreign trade have
been major factors that has enabled globalisation process.
- Factors that supported globalisation in India are as follows:
- Reduction of trade barriers with a view to allowing free flow of goods to and from other countries.
- Involvement of various local producers with MNCs in various ways.
- Some of the large Indian companies like Tata Motors, Infosys (IT), Ranbaxy, Asian Paints, etc., emerged as
- MNCs and start working globally.
Globalisation and the Indian Economy Important Terms
Globalisation: Globalisation describes a process by which national and regional economies, societies and cultureshave become integrated through the global network of trade, communication, immigration and transportation.
Planning Commission: The Planning Commission was an institution in the Government of India, which
formulated India’s Five-Year Plans, among other functions.
Multinational Corporation (MNC): An enterprise operating in several countries, but managed from one (home)
country. Generally, any company or group that derives a quarter of its revenue from operations outside of its
home country is considered a multinational corporation.
MRTPA: MRTPA stands for Monopolies and Restrictive Trade Practices Act. It was an Act following the
recommendations of Monopoly Inquiry Committee and was passed in 1970.
World Bank: World Bank is an international financial institution that extends financial assistance to their member countries for development purposes.
Export Quotas: It means the fixing of the maximum quantity of a commodity that can be exported during a year.
Import Quotas: It means fixing of the maximum quantity of a commodity that can be imported during a year.
Consumer: An individual who buys products or services for personal use and not for manufacture or resale.
Liberalisation of Economy: It means to free it from direct or physical controls imposed by the government.
World Trade Organization (WTO): It is the only global international organisation dealing with the rules of trade
Special Economic Zones (SEZs): It is an area in which business and trade laws are different from the rest of the
country. These are located within a country’s national borders and their aims include increased trade, increased investment, job creation and effective administration.
Tariff: A tax or duty to be paid on a particular class of imports or exports.
Labour Law: It is the body of laws, administrative rulings, and precedents which address the legal rights of and
restrictions on, working people and their organisations. It is also called employment law.
Globalisation and the Indian Economy class 10 notes
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